Grayscale Spot Bitcoin ETF Refused to Sue SEC

The U.S. Securities and Exchange Commission (SEC) on Wednesday rejected Grayscale’s application to convert its $13.5 billion Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. The SEC said in its filing that the filing failed to answer SEC questions about preventing market manipulation, among other concerns.

In this regard, Grayscale CEO Michael Sonnenshein tweeted: “We have filed a lawsuit against the SEC.”


Grayscale said its senior legal strategist and former U.S. attorney general, Donald B. Verrilli, Jr., a partner at Munger, Tolles & Olson, filed a petition for review on behalf of Grayscale with the U.S. Court of Appeals for the District of Columbia Circuit, arguing that the SEC failed to review Similar investment vehicles are treated consistently and thus behave arbitrarily and capriciously, in violation of the Administrative Procedure Act of 1934 and the Securities Exchange Act.

Grayscale noted that during the 240-day review period, Grayscale’s comment letter campaign resulted in a record total of more than 11,400 SEC filings, with more than 99.0% expressing support for the switch.

Grayscale’s disclosures show that the comment letter has revealed several themes including: commenters want a spot bitcoin ETF ,  ETFs holding bitcoin futures aren’t enough, ETFs ’ inherent protections are attractive, and the conversion of GBTC to ETFs will Keep America competitive.

Jake Chervinsky, policy director at the Blockchain Association, a cryptocurrency lobbying group, commented, “Deeply disappointed that the SEC rejected Grayscale’s proposal to convert GBTC into a spot Bitcoin ETF. The SEC’s focus is on investor protection, and the ETF’s Undoubtedly a better product for them. This decision violates common sense and federal law. ”

Brett Harrison, CEO of cryptocurrency exchange FTX US, said:

The SEC has approved BITO, the Proshares ETF based on a basket of CME Bitcoin futures, and other similar futures-based ETFs. And the SEC approved these on the basis that CME Bitcoin futures have adequate anti-manipulation protections.

CME Bitcoin futures are settled at the CF Benchmark Bitcoin Reference Rate (BRR), which consists of Bitcoin spot prices from eight global cryptocurrency exchanges. But the SEC rejected spot ETFs that use the same BRR to calculate NAV due to manipulation concerns. The apparent inconsistency here is based on the fact that (a) the CFTC has approved BRR-based BTC futures, (b) the SEC has approved a BRR-based futures ETF, but (c) the SEC has rejected a direct BRR-based ETF.

The SEC generally rejects spot ETFs because the spot market is not licensed under the U.S. federal regulatory regime. This is in several cases with other approved ETFs: ETFs such as EWJ (iShares MSCI Japan) contain financial instruments regulated in non-US jurisdictions. Bitcoin is regulated in many non-US jurisdictions and traded on regulated exchanges in non-US jurisdictions. ETFs like HYG (iShares High Yield Corporate Bonds) contain debt instruments that are not traded on any licensed exchange. ETFs such as FXE (Invesco Euro Trust) contain fiat currencies and have no market regulator. The SEC has raised concerns in past spot ETF rejections that there is not enough liquidity or volume in the spot market. However, many corporate bond ETFs, such as HYG, among others, have constituents that trade in the mid-single digits per day.

Brett Harrison believes that, ironically, approving a spot bitcoin ETF would bring greater regulatory oversight to the spot bitcoin market and help achieve many of the SEC’s stated goals for spot cryptocurrencies. A significant portion of existing institutional liquidity, as well as a substantial influx of capital from new players, will go into these highly regulated investment vehicles that trade primarily on SEC-regulated stock exchanges. An oversight-sharing agreement between fund issuers and spot exchanges will also allow the SEC to exercise greater oversight of their market activity, further ensuring the integrity and functioning of spot order books.

According to Gu Yanxi, a researcher in the cryptocurrency industry, a cryptocurrency bank in Wyoming is suing the Federal Reserve. Grayscale is now suing the SEC. It can be seen that the threat of encrypted digital finance to existing finance is great, and it can also be judged that the benefits involved are huge. The process of replacing existing centralized finance with encrypted digital finance has just begun !

Posted by:CoinYuppie,Reprinted with attribution to:
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